Investing.com – The macroeconomic challenges facing commodities in the first three quarters of 2024 have reversed, providing a tailwind as we enter the new year, according to analysts at Wells Fargo (NYSE:).
Increased interest rates and broader economic uncertainties weighed on commodity prices in the January-September period last year, although that trend largely reversed in the fourth quarter, the analysts led by Mason Mendez said in a note to clients published Monday.
Commodities have posted a modest performance overall in 2024, they said, citing Bloomberg Commodity Total (EPA:) Return Index is up 4.5% since December 26.
“While supply conditions continued to support higher prices, demand for commodities was held back by global economic headwinds,” the analysts wrote.
That tepid demand will improve in 2025 and become a potential spark that could trigger a rise in commodity prices, she added. However, they pointed out that the supply side “must not be forgotten”.
“After two years of subdued commodity prices, many commodity producers have slowed production growth,” the analysts said. “This could become a particularly acute issue in 2025 if demand recovers faster than most expect.”
They noted that production of new raw materials often lags behind demand by “months and sometimes years.”
Of the individual sectors, the analysts said they are most interested in precious metals, such as precious metals, and energy, with both expected to rise at least 10% through 2025. This would be higher than the returns expected by analysts from the middle of their 250-year period. 270 target range for the broader Bloomberg Commodity Total Return Index.
Gold in particular had a turbulent end to 2024, partly due to caution around further rate cuts by the Federal Reserve, which contributed to a rise in nominal and real bond yields, eroding the appeal of non-yielding bullion.
Still, the yellow metal rose about 27% annually to end the year at $2,625 per troy ounce, and the prospect of more Fed rate cuts — albeit at a potentially slower pace — could continue to boost its appeal, according to the Wells Fargo. analysts said.
They have set a target range for gold prices this year at $2,700-$2,800 per troy ounce.
Energy, meanwhile, is likely to benefit from higher demand as global economic conditions improve, analysts predict. It is estimated that oil prices will be between $85 and $95 per barrel, while crude oil will be between $90 and $100 per barrel. Oil prices fell about 3% in 2024, partly pressured by a slow recovery in global demand after the pandemic.
